The State Information
Center predicted that GDP numbers will demonstrate that
the country powered straight through the SARS and Iraq
shocks during the second quarter with an 8.3% year-on-year
pace, even faster than the 8.0% expansion in all of
2002.

Restrictions on domestic
and outbound travel are being relaxed; inbound travel
remains weak.

Lost consumption and exports
in the second quarter will force manufacturers to limit
their inventories, which will curb overall economic
growth in the third quarter.

Improved SARS situation raises retail sales in late
May
Retail sales in China for the last two weeks of May
grew by 3.98% year-on-year, the first increase since
the outbreak of SARS in the country. Health care goods
and seasonal commodities topped the list. (Xinhua,
8 Jun)

SARS affects farmers' income
Experts warned that China may fail to meet this year's
goal to increase farmers' income by 5% due to the SARS
outbreak. Fearing they may be infected by the virus, large
numbers of farmers who work in cities have returned to
rural areas since April and will not return to cities
until the end of August, when harvesting and planting
is finished. During the past years, income earned by farmers
from working in cities accounted for about 70% of the
total annual increase in income. SARS has also had some
impact on farmers' sales of farm products, as they were
unable to sell their products abroad, because foreign
countries set up technical barriers for China-produced
farm products. (China Daily, 7 Jun)

Economy

China, Mongolia agree to expand trade, economic ties
A joint declaration issued at the end of Chinese President
Hu Jintao's state visit to Mongolia said that both sides
agreed to make great efforts to expand mutually beneficial
and reciprocal economic and trade ties by seeking more
channels and wider scope for diversified cooperation.
As part of the efforts to expand cooperation in tourism,
China decided to include Mongolia on the list of destination
countries for Chinese tourists. (People's Daily, 6 Jun)

China's policies on chips meet vocal foreign opposition
China's policies to encourage the growth of its domestic
semiconductor industry are meeting with increasingly
vocal opposition from foreign industry groups and
politicians, particularly in the U.S. The policies
in question were launched in 2000, with the explicit
goal of boosting the size of the domestic industry
in order to reduce dependence on imported chips, which
are estimated to satisfy more than 90% of local demand.
The centerpiece is a break on the China's 17% VAT.
Currently China has only a handful of chipmaking facilities
using mainstream technology of producing chips on
8-inch wafers. But there is about USD10 billion of
new investment in semiconductor fabrication plants
in the pipeline. (Dow Jones, 5 Jun)

Japanese unfair trade measures condemned
Chinese exporters angrily condemned a series of unfair
trade measures by Japan to block Chinese farm produce.
Japan announced it would stop importing Chinese fowl and
eggs after finding two cases of a flu virus in a Shandong-based
firm's exports of duck meat. It issued an import warning
on Chinese frozen spinach on May 20 using the pretext
of higher-than-required amounts of pesticide residue.
(China Daily, 3 June) "required" pesticide
residue?

Mainland cities wrestle to win Taiwanese investments
Shanghai and Guangdong are fighting to attract the
island's investors by offering tax breaks and other
benefits. Shanghai has attracted 300'000 people, 5'000
companies and nearly USD9 billion in committed investment
from Taiwan. The investment figure might be higher,
since companies in Taiwan typically route funds through
a third region. The whole of Guangdong has drawn 200'000
people, 16'000 companies and USD29 billion in contracted
investment. (SCMP, 2 Jun)

Thailand, China agree to sign FTA on 200 products
Thailand and China agreed to sign a free trade agreement
for 200 products consisting mainly of fruits and vegetables.
Thailand's top export fruit product to China is durian
and its top import from China is apples. (Dow Jones, 1
Jun)

Government

New car-industry policy drafted
The Chinese Government is putting the finishing touches
to a long-awaited new policy for the fast-growing car
industry and is expected to relax some of its control.
The requirement regarding the equity structure of Sino-foreign
automobile and motorcycle joint ventures - one of the
most sensitive issues for the industry - is expected to
remain basically unchanged. However, this requirement
will not apply if Chinese and foreign motor manufacturers
set up JVs in China's export-processing zones and if their
products are exclusively for export. (China Daily, 6 Jun)

China to publish policy on global auto goals
Beijing is poised to publish an auto policy that foreign
firms may balk at, as it supports Chinese models and
local companies at the expense of foreign rivals.
The ultimate goal of the proposed policy is to turn
China into "a major global automobile-manufacturing
country" to meet local demand and "enter
the international market on a grand scale," a
16-page draft policy said. The new policy would force
international auto makers to foster research and development
within China and increase technology transfers to
their joint-venture facilities. That isn't the case
now, as most existing and planned Sino-foreign joint
ventures are focused on making established models
for the China market. (Dow Jones, 2 June)

New rules for State-owned assets management
New rules governing state-owned assets were issued
by the State Council. The provisional regulation sets
out guidelines for the ongoing reform of the state
assets management system and provides a sound legal
basis for the reform. China launched the State-owned
Assets Supervision and Administration Commission in
April. It acts on behalf of the state to directly
supervise the 196 central state-owned enterprises
that had CNY6.9 trillion of state assets at the end
of 2002. Local state assets management offices are
also being established to supervise local enterprises,
according to the newspaper. (People's Daily, 5 Jun)

Official website for foreign investment in China opens
A website
for foreign investment in China launched by the Ministry
of Commerce went into official full operation. Vice-Minister
of Commerce Ma Xiuhong said the website will will show
the open, fair and transparent principles advocated by
the WTO, and improve China's investment environment. (People's
Daily, 1 Jun)

WTO

One year's overall evaluation of WTO entry's influence
on China economy
People's Daily points out the positive effects of China's
enty into WTO. The lengthy article starts: "The whole
world has witnessed China's great performance in conducting
its commitments and economic and trade development after
WTO entry for one year and more. Facts have fully proved
China's entry into WTO has not only contributed to China's
economic development, but also instilled new energy into
neighbor countries". (People's Daily, 6 Jun)

Finance

Quotas set for foreign institutional investors
China's forex authorities set quotas for the first two
qualified foreign institutional investors, putting the
finishing touches to a long and widely watched approval
process. UBS got a USD300 million quota, while the Nomura
Securities got the nod for USD50 million. (China Daily,
7 Jun)

Banks dissolve 11-year mainland partnership
The People's Bank of China has given approval to BNP
Paribas and Industrial and Commercial Bank of China
to dissolve their 11-year partnership in the International
Bank of Paris and Shanghai. The parties agreed that
ICBC would withdraw from the joint venture, which
would become a wholly owned subsidiary of BNP. Sources
said the decision to end the partnership was reached
amicably and reflected the divergent strategies of
both banks. (SCMP, 7 Jun)

China bucks trend, moves to tight money bias
China's SARS scare and the oil market's Iraq war jitters
prompted the central bank to maintain extraordinarily
easy monetary policy so far this year. Now, the People's
Bank of China is seen as getting back to this year's
original plan, i.e. squeezing credit growth. (Dow
Jones, 6 Jun)

Nation to revise tax refund system
The Ministry of Finance is working with other government
bodies to prepare a new tax refund plan for China's export
sector. A nationwide poll conducted earlier this year
indicated 90% of export-oriented enterprises had to wait
for their tax refunds - generated in last year's fourth
quarter or even earlier. Statistics indicate about CNY200
billion worth of export tax refunds have been delayed.
(Business Weekly, 5 Jun) Foreign experts estimate the
outstanding tax refunds at a much higher level.

Goldman, China's ICBC agree to joint venture to clear
loans
Goldman Sachs and Industrial & Commercial Bank
of China plan to create a joint venture to dispose
of up to CNY10 billion of the Chinese bank's problem
loans. The venture would be the first of its kind
between a foreign investor and a Chinese state bank.
Other U.S. investment banks, including Morgan Stanley
and Lehman Brothers Holdings, are setting up similar
ventures to handle unpaid loans from China's four
main state banks. (AP, 5 Jun)

Insurance capital allowed to invest more, widely
in bonds
Chinese insurance companies can now invest more and
widely in enterprise bonds. The investment scope was
extended from enterprises belonging to the central
government to those which have over AA credit appraisal.
The ratio of the investment by insurance companies
rosefrom the current 10% to 20% of the enterprise'
total assets. (People's Daily, 3 June)

Central banks launch USD1 billion new fund
An organization of central banks in East Asia and
the Pacific region launched a fund to invest in government
bonds issued by its members. China is a participant
of the fund. The fund has an initial size of USD1
billion and aims to foster a regional bond market
to reduce the excessive reliance of local economies
on bank loans and overseas borrowing, which was believed
to be a major reason for the 1997-1999 Asian financial
crisis. The fund will also create an investment vehicle
for the sizable foreign exchange reserves of the central
banks. (China Daily, 3 June)

Fund poised to enter stock market
China's CNY124.1 billion National Social Security Fund
could begin its long-awaited investment in the mainland
stock market this month. The national fund, which made
a paltry 2.75% investment return on its assets last year,
desperately needs to raise its investment earnings. A
2001 Bank of China International report estimated China's
unfunded pension debt at USD850 billion, or 80% of its
2000 GDP. (SCMP, 3 Jun)

Business

Merrill Lynch says foreign firms may not profit in China
Merrill Lynch's emerging markets strategy and economics
team released a report in which it examined the question
of whether foreign multinationals operating in China have
indeed been making money. One of the report's findings
was that while information on the importance of China
to sales is generally widely available, there is very
little data on profits and margins. The key theme that
emerges in the team's research report is how rising domestic
competition has accentuated pricing pressures. Most multinationals
are boosting production, admitting prices will fall, and
hoping that margins can be supported by cost-cutting and
economies of scale. Sectors that are currently profitable
include the handset, automobile, household and consumer
goods, capital goods and computer hardware sectors. (Taipei
Times, 8 Jun)

Merger to form medical giant
The China Medicine Material Group, which produces
and sells traditional Chinese medicine, is to merge
with the China National Pharmaceutical Group Corp
(SinoPharm). Experts view the move as a prelude to
a larger-scale wave of mergers and acquisitions in
the fragmented industry. China's annual medicine market
is expected to grow from the current USD21 billion
to USD60 billion by 2010 and to USD120 billion by
2020. (China Daily, 6 Jun)

Waterford ware to be made in China
Waterford Wedgwood, the Irish china and crystal maker,
joined the exodus from British manufacturing by outsourcing
a raft of its production to China. Outsourcing production
to China will bring unit cost savings of at least
70%. (Times, 5 Jun)

Lucent to invest USD50 million to expand China R&D
facilities
U.S. telecommunications equipment maker Lucent Technologies
is investing about USD50 million to expand its R&D
organization in China and focus more on next-generation
mobile phone technology. Bell Labs, the research arm
of Lucent Technologies, has several R&D facilities
across China as well as six joint labs with top Chinese
schools like Tsinghua University and Peking University.
(Dow Jones, 5 Jun)

Foreign mobile phone giants localize in scramble
for Chinese market
Foreign firms are localizing their products in China
as they strive for a greater share of the world's
largest mobile phone market. Foreign mobile phone
giants shared 84% of the Chinese market in 1999 but
fell to 50.68% in 2002, while domestic companies were
rising significantly in market shares, reaching 39.4%
last year. (Xinhua, 4 Jun)

SARS worsens cellphone glut in China
A recent production surge and the SARS virus outbreak
are threatening to create an even bigger cellphone
glut in the world's largest wireless market and dent
the growth outlook for both domestic manufacturers
and many of the world's top phone makers. UBS Warburg
estimates handset sales in China will grow about 10%
this year to roughly 75 million units, while overall
production, before the onset of SARS, was expected
to grow by a heftier 25% to 163 million units. (Reuters,
1 Jun)

China automobiles to tap for overseas market
According to the forecast of experts it is possible for
China-made autos to export on a great scale five years
from now on. Along with the expansion in auto-production
in China, all transnational auto-enterprises in China
are bound to release their production capacities to the
overseas market. (People's Daily, 3 June) where
there is overcapacity as we speak.

Car industry steps on the accelerator
Car making has become the fifth-largest Chinese manufacturing
industry and a leading contributor to the country's economic
development. The industry's sales income accounted for
5.2% of all industrial sales last year, up from 2.2% in
1990. Experience from developed countries suggests that
demand for private cars speeds up when a country's per
capita GDP reaches USD1'000. China's per capita GDP reached
that level last year. (Xinhua, 3 June)

Energy

Three Gorges Project to begin power generation in August
The first two power generators at the Three Gorges project
on the middle reaches of the Yangtze River will start
operation in August. The construction of the mammoth dam
project is due to be completed in 2009, when its 26 power-generating
units with a combined capacity of 18.2 million kilowatts
will be operational. (People's Daily, 8 Jun)

Beijing

Lowest average house-price in Beijing, but still double
the average in China
2002 saw the average price for commodity houses to be
at CNY4764/sqm, a decrease of CNY298/sqm as against the
same period of the previous year, the lowest ever since
1997. Also, the price in Beijing is 15% over that in Shanghai,
whereas the average disposable income in Beijing in 2002
was CNY12'500, 6% lower than that of Shanghai. Why the
house-price remains at a high level is directly connected
with the land price and disorderly operation in the real
estate market. (People's Daily, 6 Jun)

Shanghai

Shanghai says inked contract to host Formula One In
'04
Shanghai International Circuit Co. said it has secured
the right to host an annual leg of the international Formula
One racing calendar in Shanghai for the next seven years.
The company plans to raise CNY2.2 billion locally to finance
the construction of a new racing circuit in China's financial
metropolis. (Dow Jones, 4 Jun)

Pearl River

Guangzhou reports dramatic rise in industrial output
In spite of the negative impact of SARS, the city of Guangzhou
registered CNY39.1 billion in industrial output value
in May, a 25.4% year-on-year rise. For the period from
January to May of this year, local industrial added value
totaled CNY47.1 billion, a rise of 18.4% year-on-year.
This increase led to a year-on-year 13.8% growth rate
in local GDP during the five month period. (Xinhua, 8
Jun)

Various

Affairs of China's Communists, mandarins and businessmen
under spotlight
Mounting investigations into the financial dealings of
Zhou Zhengyi, one of China's richest tycoons, could shed
light on some of the more untenable practices of China's
ruling Communist party. Zhou's story could implicate party
leaders at the highest level, including ex-president Jiang
Zemin and Politburo Standing Committee member and Jiang
ally Huang Ju. (AFP, 8 Jun)

China executive sentenced to life for tax fraud
A Chinese executive was sentenced to life in prison
and his company fined USD58 million in a record-setting
tax fraud case. The company created 1'545 fake tax
receipts between 1997 and 2000 defrauding the government
of CNY193 million in export-tax rebates. (AP, 2 Jun)

Weekly
Market update

06
June 2003

30
May 2003

Shanghai A

1629.70

1650.30

Shanghai B

116.37

119.50

Shenzhen A

455.36

464.40

Shenzhen B

220.51

225.57

Hong Kong Red Chip

1045.43

1003.66

Hong Kong H

2521.71

2460.23

Source:
South China Morning Post

China Business
Briefing is a random selection of business related news gathered
from various media and news services covering China, edited
by the Embassy of Switzerland in Beijing and distributed among
Swiss Government Offices and other interested parties. The
Embassy does not accept responsibility for accuracy of quotes
or truthfulness of content. Upon request and depending on
the resources available, the Embassy will provide further
information on the subjects mentioned in the China Business
Briefing.